Persistence pays off for biotech firm Insmed

JOHN REID BLACKWELL TIMES-DISPATCH STAFF WRITER
Published: May 15, 2009

At a time when many small biotechnology firms are struggling to stay afloat, Richmond-based Insmed Inc. is in the enviable position of being a newly cash-rich company.

Thanks to the sale of some of its biotech drug candidates in March, the biopharmaceutical company has received a cash infusion of $125 million. That's a huge turnaround from the $2.4 million in cash the company had on hand in late December, when it was burning through about $1.2 million per month.

Insmed executives say the deal, which came after two years of work and struggles for the company, gives it a war chest to hunt for new growth opportunities, possibly by acquiring drug candidates from other biotech companies that are facing financial distress in the economic downturn.

"It's a tribute to the tenaciousness with which we've run our business over the years," said Geoffrey Allan, the company's president and chief executive officer. "Two years ago, we could have folded the tent. We didn't do that."

The money also gives Insmed a cash buffer while it continues to test one of its key drugs, Iplex, for treatment of myotonic muscular dystrophy, a genetic, muscle-wasting disease that affects about 30,000 Americans.

The timing of the deal also was important, coming just as the financial crisis has made it more difficult for biotechnology firms to raise money. About 30 percent of publicly traded biotech companies have less than six months' worth of cash on hand, while 45 percent have less than one year, according to a recent report by the Biotechnology Industry Organization, a national trade group.

"I would definitely say that Insmed is in a unique position of having significant resources on hand," said Mark Herzog, executive director of the Virginia Biotechnology Association.

"The vast majority of companies I speak to are really struggling with only having enough cash on hand to last three to six months," Herzog said. "Insmed is very well-placed to be able to continue their research and development efforts."

The deal is the latest in a series of twists and turns for Insmed, which was founded in Charlottesville in 1988 to develop diabetes drugs.

In 1995, the company became one of the first tenants of the Virginia BioTechnology Research Park in downtown Richmond. It has since moved its corporate office to Stony Point Parkway in South Richmond.

The company has taken its share of lumps in recent years, most notably in 2007, when Insmed settled a patent-infringement lawsuit filed by a competitor, which forced it to remove Iplex from the market for treatment of a rare growth disorder in children.

The settlement allowed Insmed to continue developing and marketing Iplex for other illnesses such as muscular dystrophy and Lou Gehrig's disease, but the lawsuit "had a fairly devastating effect on our business," Allan said.

In the past couple of years, the company suffered from cash-flow issues and fought to keep its shares listed on the Nasdaq stock exchange.

Setbacks come with the territory in biotech, where the outcome of product research is uncertain and financial backing is often difficult to obtain.

"I think we are pretty battle-hardened here in terms of what we have gone through," said Kevin Tully, the company's executive vice president and chief financial officer. "You are always in the situation where you are having to finish a clinical trial, manufacture a drug, and look for cash to support it. You are constantly having to adjust. As a small company, we have been able to do that. We don't have a lot of bureaucracy."

After the lawsuit settlement, Allan said, "we essentially circled the wagons and figured out what we were good at, and how to deploy the resources we had available to survive that particular blow."

Insmed's strategic solution in 2007 was to move into follow-on biologics, an area of research in developing and making generic versions of drugs produced through biological processes. The company was successful at developing several experimental versions of drugs used in therapies for cancer patients.

The strategy paid off in February when pharmaceutical company Merck & Co Inc. agreed to buy Insmed's follow-on biologics platform for $130 million. Insmed said it will have about $125 million from the deal after fees and taxes.

On Wednesday, Insmed reported a first-quarter profit of $117.8 million, compared with a loss of $4.9 million in the same period of 2008. The turnaround was largely because of the sale of its follow-on biologics business to Merck.

The deal also makes Insmed a much leaner company, with just 20 employees at its Richmond office. Its Boulder, Colo., facility, which employs 70 people, was sold as part of the Merck deal.

The company's next step is to complete testing on its Iplex drug for muscular dystrophy, which has no other drug treatment.

"We are, in many ways, pioneering development in that area," said Glen L. Kelley, the company's vice president for regulatory affairs. Though the outcome is still uncertain, "it is a great place for a company like Insmed to spend time developing drugs, because it is a niche opportunity."

Insmed executives said they are also going to carefully evaluate other opportunities such as acquisitions of potential drugs that are in the late stage of development that would help the company become profitable for the long term.

"Can we repeat the exercise and in two years have a very positive outcome?" Allan said. "I can't guarantee it, but we will all work towards it."